Germany Cuts Solar Energy Subsidies to Curb Installations Boom

Germany, the world’s biggest market
for solar power, plans record reductions in subsidies for the
industry as part of a program to rein in a boom in
installations.

Environment Minister Norbert Roettgen said he plans to cut
premium rates for solar power by between 20.2 percent and 29
percent from March 9 and decrease them further each month
beginning in May. Plants larger than 10 megawatts won’t get
support after July 1.

Chancellor Angela Merkel, encouraging renewable energy to
replace nuclear power stations that close by 2022, wants to chop
in half annual solar installations after incentives for the
industry pushed capacity past government targets. The cuts are
deeper than the 15 percent reduction ordered on Jan. 1 and will
hurt manufactures such as Q-Cells SE (QCE) and Conergy AG (CGYK).

“Germany’s energy overhaul will only be successful if
there are adaptions,” Roettgen said at a press conference today
in Berlin. He said Germany’s solar subsidy system “is a success
story in sparking installations and cost reductions.”

Shares of solar panel makers plunged after the news.Suntech Power Holdings Co. (STP) was down 5 percent, Canadian Solar
Inc. 6 percent and Solarworld AG by 7 percent. Trina Solar Ltd.
fell 9.7 percent even after forecasting an increase in shipments
this year.

European countries including the U.K., Italy and France
have accelerated subsidy cuts for solar energy in the past year
to adapt to falling panel prices and control runaway growth.

Double the Goal

Roettgen and Economy Minister Philip Roesler agreed on the
program after debating for months exactly how to rein in the
industry. They’re adjusting the feed-in tariffs that grant
above-market rates for solar power and spurred installations
last year more than double the government’s goal.

The draft agreement, which Merkel’s Cabinet is scheduled to
endorse next week, targets 2.5 to 3.5 gigawatts in installations
this year and the next, down from a record 7.5 gigawatts in
2011. Thereafter, yearly targets will be reduced by 400
megawatts to reach 900 to 1,900 megawatts in 2017.

“What’s planned here is a solar exit law,” Carsten Koernig, head of the lobby, said in an e-mailed statement. “The
energy overhaul won’t succeed like that. Tens of thousands of
jobs in one of the most important industries of the future are
in danger.”

Today’s subsidy cut is the most severe since Germany in
2004 began supporting the industry with a feed-in tariff, which
grants above market rates for renewable power. Solar panel
prices fell 46 percent last year after Asian manufacturers led
by Suntech Power Holdings Co. boosted production.

Prices Plunge

Officials responsible for setting subsidy levels acrossEurope have struggled to keep up as the price of solar equipment
tumbled in recent years.

The cuts will put further pressure solar companies such as
Q-Cells (QCE)and Conergy (CGYK), the German solar manufacturers that are
already struggling with rising competition from China, where the
world’s three largest panel makers are based.

The new feed-in tariffs will be 0.135 euro for ground-
mounted solar parks with no more than 10 megawatts and rooftop
plants with between this size and 1 megawatt. Smaller rooftops
will get 0.165 euro and those will less than 10 kilowatts will
qualify for 0.195 euro.

As of May 1, the rates will reduced by 0.15 euro every
month until the end of the year and remain in place during 2013.
Rates will then be cut further every January between 2013 and
2016, according to the proposal.

“The cuts will drag module prices down and squeeze
margins,” Henning Wicht, lead solar analyst for IHS iSuppli,
said in Munich before the decision. “Module prices in Germany
will have to come down at least 10 percent.”

Roesler has previously called for limiting solar
installations to about 1 gigawatt per year, while Roettgen,
whose ministry is responsible for the subsidy law, has in the
past opposed a fixed limit. That a cap has not been established
is “good news”, Wicht said.